MARKETAXESS HOLDINGS INC Q3 FY2025 earnings call

Key Points

• Market conditions: Return to challenging market conditions with historic new issue in September; U.S. credit revenue growth impacted by new protocols and trade size shifts.
• Initiatives:
  • Client-initiated: 10% growth in block trading ADV across U.S. credit, emerging markets, Eurobonds; October saw 21% increase.
  • Portfolio trading: 20% increase in total portfolio trading ADV, record U.S. high-yield ADV; October up 25%, market share in U.S. credit portfolio trading up 300 basis points.
  • Dealer-initiated: 18% increase in dealer-initiated ADV; October up 22%, supported by Mid-X growth.
  • Protocol innovation: Launching closing auctions for fixed income, similar to equity auctions, to provide end-of-day liquidity.
  • Technology modernization: Investing in platform to be protocol agnostic, using data/analytics; automation trade count and volume growing at 3-year CAGR of 29% and 28%.

Revenue for the third quarter was $209 million, up slightly from the prior year. Revenue growth outside of U.S. credit was strong at 10%. Total credit commission revenue was $165 million, down 2% compared to the prior year, with U.S. high-grade down 9%, emerging markets up 11%, and Eurobonds up 9%, while U.S. high yield was flat. Services revenue increased 9% to $29 million, information services revenue was $14 million (up 6% or 5% excluding currency), post-trade services revenue was $11 million (up 9% or 4% excluding currency), and technology services revenue was $4 million (up 20%).

Total expenses increased 3%, reaffirming full-year 2025 expense guidance at the low end of $501 million to $521 million ex notable non-GAAP or $505 million to $525 million GAAP. Generated $385 million in free cash flow over the trailing 12 months; repurchased 595,000 shares year-to-date through October 2025. Confident in investments driving future revenue growth, expecting higher market share in coming quarters.

• Market volatility: Limited periods of volatility in recent years impacting revenue growth in U.S. credit.
• Protocol mix: Reduction in credit fee capture due to protocol mix.
• Competitive landscape: Challenges from new protocols and market dynamics affecting U.S. credit revenue growth.

Q: Chris Allen on Mid-X U.S. launch, pipeline for dealers and share gains A: Mid-X launched late Sept, early days but running daily now, on track for $2.7B run rate. Connected to dealer community and portfolio trading. Investments in tech and protocols to drive market share.

Q: Patrick Moley on closing auctions opportunity A: Closing auctions aim to provide end-of-day liquidity for fixed income, leveraging S&P partnership, targeting liquid IG and high-yield bonds, with trend of market activity moving closer to close.

Q: Alex Kramm on U.S. block trading timing A: Block trading showing growth, especially in October, but aims to increase further with new features and content delivery to attract dealer liquidity Q: Christopher O'Brien on macro environment and growth A: Discussed market environment impact, rate cut expectations, and how it could affect liquidity and turnover Q: Simon Clinch on trade size trends A: Smaller trades growing due to portfolio trading and SMA; larger trades growing with block trading, expecting continued growth with protocol investments Q: Jeff Schmitt on portfolio trading share pause A: Equilibrium in IG portfolio trading, but strong growth in high-yield; dealers providing liquidity, investment paying off Q: Ritwik Roy on macro and expenses A: Discussed weighted average years to maturity, fee per million sensitivities, and expense growth driven by hires, tech, and timing-related expenses Q: Elias Abboud on Open Trading adoption A: Open Trading adoption due to new liquidity sources (systematic hedge funds, large investment managers) providing liquidity even in low volatility Q: Patrick O'Shaughnessy on high-yield electronic market share challenges A: Challenges due to liquidity and information leakage; addressing with block trading solutions, AI tools, and portfolio trading growth Q: Simon Clinch on competitive environment A: Mid-X, EM investments, and protocol innovations addressing competition; confident in growth in EM and portfolio trading segments